ESG Model for British Telecom and France Telecom

The report evaluates British Telecom and France Telecom using the ESG model. It analyzes ESG scores, rankings, recommendations, and financial performance. The telecom industry is a lucrative investment option, and the ESG model helps in making better investment decisions.

qwertyuiopasdfghjklzxcvbnmqw
ertyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopa
sdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklz
xcvbnmqwertyuiopasdfghjklzxcv
bnmqwertyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwer
tyuiopasdfghjklzxcvbnmqwertyu
iopasdfghjklzxcvbnmqwertyuiop
asdfghjklzxcvbnmqwertyuiopasd
fghjklzxcvbnmqwertyuiopasdfgh
jklzxcvbnmqwertyuiopasdfghjklz
xcvbnmrtyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwer
ACCOUNTING FINANCIAL ANALYSIS

ESG model
Executive Summary
The telecom industry is a lucrative investment option in any country because of the
increasing demand for internet and other communicative demand. The world has become
small with an increase in connectivity and telecom boom is a result of it. The
telecommunication market presents a very interesting field for research. The present report
consists of the evaluation of British Telecom and France Telecom using the ESG model. The
report initiates with the introduction of both the companies followed by the ESG model and
practical insight into both the company.
2

ESG model
Contents
Contents................................................................................................................................................3
Introduction...........................................................................................................................................4
ESG Model.............................................................................................................................................4
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12
Table 1: Telecom sector summary of ESG Scores, rank, recommendation, outlook, financial
recommendation and target prices......................................................................................................5
Table 2 Average revenue per user (ARPU) (£) of British Telecom...................................................6
Table 3 Order intakes from business and public sectors (£m)..........................................................7
Table 4 Average revenue per user (ARPU) (€) of France Telecom...................................................7
Table 5 Convergent B2C consumer base............................................................................................8
3

ESG model
Introduction
The UK telecommunication market was in the early 1980s, deregulated. It was among the
first markets to be deregulated along with the United States of America’s market. The UK
market was among the first to innovate, introduce and implement regulations in the
telecommunication sector like price cap regulation.
France has the third largest market in Europe. It is worth about 31 billion annually. The
Orange group is France’s largest and one of the world’s biggest players in the sector. It is in
the process of developing a large national optical fiber network (France Telecom, 2018).
One of the major steps of analysis of listed equities today is ESG analysis. It involves
environmental, social and governance factors. It is the most widely used practice in the
market today.
ESG Model
ESG is a model that takes into consideration key economic and social variables like equity
return, inflation, interest rates, FOREX, etc. The analysis done by Oddo on the telecom
industry identified certain factors like long term performance drivers. Factors like sector
consolidation, regulation, sustainable development, emerging countries, and technological
and logical advances or innovations leading to breakthrough developments or landmark
achievements (Deegan, 2011).
The OECD, United Nations, and European Union’s principles and guidelines inspire the
concept of ESG. This model is used to compare better investment decisions and provide
investment guidelines. They help in determining the sustainability of the investment options.
They help in determining the risks and return associated with an investment and
understanding how the financials of the company will perform in the future (Madura & Fox,
2011). These help in the analysis of the historical performances of companies and the
financials are analyzed and forecasts of future financials are done. This study is undertaken to
associate and affiliate to the corporate social responsibility of companies.
It also undertakes to ensure that the environmental effects of companies are minimized. The
energy savings, sustainability fuse of environmental resources and preservation of the same is
also a part of the ESG study (Peirson, Brown, Easton, Howard & Pinder, 2015). The social
4

ESG model
concerns that investors might have are also taken into account by the ESG model. The level
of centralization and decentralization along with the recruitment policies of the company are
a key concern to investors. Investors are of the firm belief that the greater the pools of talent
available to the company, the better are the chances of finding a suitable person for the job
(Betty, 2017). If fulfils the company’s motive of fitting square pegs into square holes, or
finding the best person for the job. Diversity and the ‘power of difference’ are being
increasingly recognized by society (Gowthrope, 2011).
Employee compensation, just and equitable distribution of income is some of the many
factors that are taken into consideration by the ESG model (Betty, 2017). Equitable
distribution of income among the employees on the basis of work done, irrespective of
gender, caste, creed or racial status are some of the many variables accounted for (Daviees &
Crawford, 2012).
Animal welfare is another major concern of investors. Whether the products are tested on
animals or not? Whether then animals are bred for the food market? These are the common
concerns of investors today.
Table 1: Telecom sector summary of ESG Scores, rank, recommendation, outlook, financial
recommendation and target prices.
Company
ESG
Score
ESG
Rank
ESG
Recommendation
ESG
Outlook
Financial
Recommendation
Target
Recommendation
(pounds)
Operators:
British
Telecom 74.00 1 1 Stable 3 170.00
France
Telecom 53.30 11 3 Positive 1 24.00
(Source: France Telecom, 2018)
(Source: BT PLC, 2018)
If we compare the above figures, we can draw interesting inferences.
Firstly, British Telecom has an ESG score of 74 which is way ahead than the ESG score of 53
of France Telecom. This shows us that when environmental factors like management, risk,
5

ESG model
and opportunities; social factors like regulation of human capital, ecosystem maintenance,
and quality of working conditions; and governance factors like sustainable development
strategy, corporate governance and business ethics are taken into account, British Telecom
surges ahead of France Telecom. Also, British Telecom has a way superior ESG rank of 1 as
compared to France Telecom’s 11. The target recommendation of British Telecom is 170
pounds which is almost seven times that of France Telecom at 24.
British Telecom’s Average revenue per user (ARPU) (£) has steadily increased from 32.6 in
2014, 34.6 in 2015, 37.1 in 2016, 39.9 in 2017 to 41.7 in 2018 (BT PLC, 2018).
Table 2 Average revenue per user (ARPU) (£) of British Telecom
Average revenue per user
(ARPU) (£) of British Telecom
Year ARPU (£)
2014 32.6
2015 34.6
2016 37.1
2017 39.9
2018 41.7
(Source: BT PLC, 2018)
6

ESG model
While the mobile ARPU of British Telecom steadily increased from 18.3 in 2016, 19.8 in
2017 to 20.8 in 2018, its order intakes from business and public sectors (£m) increased from
3163 in 2016, 3369 in 2017 to 3391 in 2018 (BT PLC, 2018).
Table 3 Order intakes from business and public sectors (£m)
Order intakes from business and public sectors (£m)
Year
Orders
(£m)
2016 3163
2017 3369
2018 3391
(Source: Betty, 2018)
The ARPU (€) of France Telecom has been somewhat inconsistent at 65.1 in Q4 17, 64.8 in
Q1 18, 63.8 in Q2 18, 65.1 in Q3 18 to 65.5 in Q4 18.
Table 4 Average revenue per user (ARPU) (€) of France Telecom
Average revenue per user (ARPU) (€) of France Telecom
Year ARPU (€)
7

ESG model
Q4 17 65.1
Q1 18 64.8
Q2 18 63.8
Q3 18 65.1
Q4 18 65.5
(Source: France Telecom, 2018)
During the same time period, France Telecom’s convergent B2C customer base in millions
consistently grew from 5.98 in Q4 17, 6.04 in Q1 18, 6.10 in Q2 18, 6.12 in Q3 18 to 6.13 in
Q4 18 (France Telecom, 2018).
Table 5 Convergent B2C consumer base
Convergent B2C consumer base
Year Orders (millions)
Q4 17 5.98
Q1 18 6.04
Q2 18 6.1
Q3 18 6.12
Q4 18 6.13
8

ESG model
(Source: France Telecom, 2018)
This proves that while the customer base grew steadily, the Average revenue per user
(ARPU) could not show a steady upward trend.
There exist various ESG ratings agencies which provide ESG ratings to organisations.
Investors rely on these ESG rating agencies to decide and estimate the ESG rating of an entity
(Henderson, Peirson, Herbohn & Howieson, 2015).
9

ESG model
Conclusion
British Telecom has an ESG score of 74 which is way ahead than the ESG score of 53 of
France Telecom. This proves that when the sustainability is taken into consideration British
Telecom moves ahead of France Telecom and hence should be selected when it comes to the
point of investment. A major problem in the ESG scenario is the lack of standardization. To
solve this issue, organizations like ISO (International Organisation for Standardisation)
provide widely accepted standards for many of these areas covered. The growing reliance of
the investors on the ESG model is pointing more and more towards the ‘Responsible
Investment’ goal of the investing regulatory bodies. The concepts of social, environmental
and corporate governance are linked to the concept of Responsible Investment.
10

ESG model
References
Betty, H. (2018). ESG Reports and Ratings: What They Are, Why They Matter. Retrieved
from: https://corpgov.law.harvard.edu/2017/07/27/esg-reports-and-ratings-what-they-
are-why-they-matter/
BT PLC. (2018). BT PLC Annual report & accounts 2018. Retrieved from:
https://www.btplc.com/Sharesandperformance/Financialreportingandnews/
Annualreportandreview/index.htm
Davies, T., & Crawford, I. (2012). Financial accounting. Harlow, England: Pearson.
Deegan, C. M. (2011). In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
France Telecom. (2018). France Telecom Annual report & accounts 2018. Retrieved from:
https://www.sec.gov/Archives/edgar/data/1038143/000095016803000869/d20f.htm
Gowthrope, C. (2011). Business accounting and finance for non specialists (3rd ed.). South
Western
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial
accounting. Pearson Higher Education AU.
Madura, R., & Fox, J. (2011). International financial management (2nd ed.). South Western
Peirson, G., Brown, R., Easton, S., Howard, P & Pinder, S. (2015). Business FinanceNorth
Ryde: McGraw-Hill Australia.
11